Section 9: Application for initiation of corporate insolvency resolution process by operational creditor.

Insolvency and Bankruptcy Code, 2016

Section 9: Application for initiation of corporate insolvency resolution process by operational creditor.

The Insolvency and Bankruptcy Code (IBC) was formulated to help in the resolution of insolvency and under Section 9 of IBC, an OC (operational creditor) can initiate the corporate insolvency resolution process (CIRP), if certain requirements are met.

Scope of Section 9 of IBC

The primary aim for enactment of IBC was to provide a robust mechanism for insolvency and bankruptcy in India, Section 9 of IBC is mainly concerned with the initiation of Corporate Insolvency Resolution Process (CIRP) by the OC’s against the corporate debtor for non-payment or default in payment for “operational debts”, for example those concerned with the payment of goods or services.

When can the Corporate Insolvency Resolution Process (CIRP) initiated

The OC can initiate the CIRP after the expiry of 10 days from the date of receipt of notice or invoice for demanding payment.
The OC did not received any payment from corporate debtor or reply as to the timeframe within which such disputes will be resolved or any notice for such dispute under sub-section 2 of section 8 of IBC.
The OC may file an application before the NCLT for initiating a CIRP

Pre-requisites for filing of an application under Section 9 of IBC

Apart from the application, the OC is required to furnish the following documents for the application to be considered complete:

Copy of the invoice/demand notice to the corporate debtor.
Affidavit stating that no notice was given by the corporate debtor relating to unpaid operational debt.
Copy of the certificate from financial institutions like banks maintaining accounts of the operational creditor confirming that there is no payment of an unpaid operational debt.
Copy of any record with information utility (IU) confirming that there is no payment of operational debt by the corporate debtor (optional).

Admission of application:

The NCLT shall, within 14 days of the receipt of the application admit the application and communicate such decision to operational creditor provided:

The application under sub-section 2 is complete;
There is no payment of the unpaid operational debt;
The invoice/notice for payment to the corporate debtor has been delivered by the OC;
No notice of dispute has been received by the OC
There is no disciplinary proceedings pending against any resolution professional appointed by the OC.

Judgements by Supreme Court relating to Section 9 IBC

Discretion in Admission of CIRP Applications Between Financial and Operational Creditors:

The Supreme Court has drawn a crucial distinction between the initiation of the Corporate Insolvency Resolution Process (CIRP) by Financial and Operational Creditors under the Insolvency and Bankruptcy Code, 2016. Under Section 9(5), once an Operational Creditor establishes the existence of an operational debt and a corresponding default, the Adjudicating Authority shall admit the application leaving minimal scope for discretion. In contrast, Section 7, which governs applications by Financial Creditors, uses the term may, thereby conferring a discretionary power upon the Adjudicating Authority. The tribunal is required to be satisfied not only of the occurrence of a financial debt and default but also that no other circumstances warrant rejection of the application.

This distinction was emphatically reaffirmed by the Supreme Court in Vidarbha Industries Power Ltd. v. Axis Bank Ltd. (2022), where the Court held that even in the presence of an admitted financial debt and default, the National Company Law Tribunal (NCLT) is not bound to admit the application if other relevant factors justify postponement or rejection of CIRP admission.

The Test of ‘Existence of Dispute’:

In contrast to the relatively discretionary standard under Section 7, an application under Section 9 by an Operational Creditor mandates a stricter statutory filter where the existence of a dispute acts as a definitive bar. The Supreme Court, in Mobilox Innovations Pvt. Ltd. v. Kirusa Software Pvt. Ltd. (2017), laid down the test to be applied by the Adjudicating Authority when examining such applications. It held that if a notice of dispute has been received by the Operational Creditor or there exists a record of dispute in the information utility, the Adjudicating Authority must reject the application under Section 9(5)(2)(d).

The Court clarified that at this stage, the Authority is not required to examine the merits of the dispute in detail. Instead, it must assess whether there is a “plausible contention” that requires further investigation and whether the dispute is not a patently feeble legal argument or an assertion of fact unsupported by evidence. Spurious, illusory, or hypothetical defences are to be discarded, but so long as a real dispute exists, the application under Section 9 cannot be admitted.¹ This jurisprudential threshold ensures that the insolvency mechanism is not misused as a debt recovery tool and maintains the integrity of commercial disputes.

Time Limits under the Code:

In Surendra Trading Company v. Juggilal Kamlapat Jute Mills Company Ltd. & Ors. (2017), the Supreme Court addressed the interpretation of various procedural timelines under the Insolvency and Bankruptcy Code, 2016, and clarified the distinction between directory and mandatory provisions. The Court observed that while the Code emphasizes strict adherence to time limits to preserve the sanctity and efficiency of the Corporate Insolvency Resolution Process (CIRP), not all such timelines are to be treated as mandatory.

Significantly, the Court held that the 14-day period prescribed for the Adjudicating Authority to admit or reject an application is directory, not mandatory. This period is to be computed from the date the application is listed for hearing, not from the date of filing, as the Registry must first verify the completeness of the application.

Conversely, the NCLAT had previously held that the 7-day period under the provisos to Sections 7(5), 9(5), and 10(4) for curing defects in an incomplete application is mandatory. However, the Supreme Court disagreed, holding that no compelling justification existed to treat this 7-day limit as mandatory. The Court reasoned that premature rejection for failure to rectify defects within seven days could lead to undue hardship, particularly where valid and reasonable grounds exist for the delay. The Court clarified that an application becomes legally tenable only after defects are removed and it is complete in all respects.